After the battery is operational, the utility industry's Electric Power Research Institute (EPRI) will collect performance information and use that data to help develop broader adoption within the industry. The Department of Energy's Sandia National Laboratory will separately collect information and DOE will make its findings public through the federally funded Smart Grid Information Clearinghouse.

Xtreme Power sold the 36-megawatt battery to Duke Energy (DUK) and DOE. Duke invested $22 million and the DOE provided a $22 million matching grant. The combined $44 million investment is equivalent to $1.2 million per megawatt, about the cost of a new combined cycle gas turbine in a pricy neighborhood.

It's just a battery, so what's the big deal?

Batteries displace traditional power plants. The difference is that batteries do it better. They can respond to the grid's incremental loads faster without adding air pollution. Best of all, batteries are cost leaders and as such can decrease market-clearing prices for energy. Batteries can acquire and store energy when market-clearing prices for power are normally low. They can sell the stored energy during the peak periods when demand and prices are high. All they need is a price difference to make money and the market offers that price difference almost every day.

It is a lot more than just another energy source. In many regions of the country, grids pay for additional services from power producers. One is capacity and another is ancillary services. Capacity is the ability to produce energy. Grids need to assure that there is enough capacity available to meet peak demands. To assure reliability, some grids will offer capacity payments as an enticement to keep power production assets ready and available. In many cases, battery owners could be entitled to capacity payments. Each grid and Regional Transmission Operator (RTO) have different rules on how those payments could be earned. But for some battery installations, the payments could be substantial.

The other revenue stream is ancillary services. Grids and RTOs purchase ancillary services to assure their systems maintains stable and reliable supply. With demand from consumers changing by the nanosecond, assuring high quality and stable power can be a technical and economic challenge. When it comes to ancillary services, batteries technically outperform traditional power plants. The response time from batteries is instantaneous and accurate. The response time from rotating machinery is relatively slow and inaccurate.

Economically, batteries have a cost advantage. Their production costs are comparatively low. They avoid fuel costs and air emissions. In addition, the energy conversion cost of a battery is about 10%, which is far more efficient than a typical power plant. This provides an economic and environmental advantage on top of a technical advantage. Capital costs are a challenge for batteries. Batteries and the electronic equipment that converts power from alternating current to direct current back to alternating current have limited lifespans. After about ten years, battery installations would expect major replacements of critical and costly components. In contrast, a traditional investment in a power plant can offer returns for decades.

But the risks associated with the capital costs are partially offset by flexibility. According to AES (AES), the architecture of battery systems scales very linearly, almost like Legos. The scaling is only a function of adding more batteries. Batteries are gaining traction. AES Energy Storage, a unit of AES, built a 12-megawatt project in Chile, they operate an 8-megawatt battery in New York and they are building a 32-megawatt project in West Virginia.

But none has been done anywhere near the scale of the 400-megawatt battery proposed for Long Island Power Authority (LIPA). Using the Lego idea, AES believes it relatively easy to build larger projects, which could be built at one location or spread over various sites. Long Island may be ideal for large-scale storage because it has only a few interconnections to other regions. Further, LIPA intends to stop buying power from some of the region's oldest power plants. They want to use AES's batteries reduce the amount of generation needed at peak. By reducing the use of peaking power, LIPA would lower market-clearing prices and they would reduce air emissions. Consumers would ultimately benefit with lower energy costs.